By James T. Areddy
SHANGHAI -- China's slipping economic momentum is sparking a
shift in government priorities -- away from curbing mounting debt
levels and toward a renewed focus on raw growth.
Gross domestic product growth fell to 6% for the third quarter
of the year, hitting the bottom of Beijing's targeted range, amid
clearer signals the government wants to ramp up infrastructure
spending and official support for businesses, the kinds of policies
that fueled borrowing -- and economic expansion -- after the 2008
financial crisis.
Beijing is taking steps to give banks more leeway to lend,
prodding local authorities to borrow to fund big-ticket
infrastructure projects like high-speed railways, and allowing the
country's currency, the yuan, to depreciate to counter trade
challenges from the U.S.
In the last few years, China's government has signaled it was
de-emphasizing the GDP's pace, in favor of an emphasis on what
officials called the quality of growth. The priority was containing
debt. But authorities are now indicating that the headline growth
rate is important again.
The third-quarter GDP expansion reported Friday by China's
National Bureau of Statistics put growth at the baseline of the
government's 6%-6.5% target for the year, after efforts in
September kept it from going lower.
Economic figures for September also released Friday showed an
unexpected burst of activity in infrastructure spending in the
weeks ahead of China's Oct. 1 National Day anniversary -- which
analysts attributed to last-ditch efforts by authorities to keep
the quarterly GDP number from slipping under 6%.
The slowdown continued a trend of growth falling to levels not
seen in the roughly three decades since China began using its
current GDP measure in the early 1990s.
GDP growth has been slowing since 2010, clocking in below 7% in
every quarter since mid-2015 as the country digests massive debt
from past construction and, more recently, as business confidence
is whipsawed by trade tensions with the U.S.
The deceleration reported Friday compares with China's 6.2%
growth in the second quarter, which economists said was driven by
more lending, and the 6.4% pace in the first quarter, which was
helped by a 2 trillion yuan ($283 billion) tax cut in March.
While officials had appeared to be growing comfortable with
tapering headline GDP numbers, anything below 6% risks undermining
longer-term goals, such as doubling the GDP over the course of this
decade.
The continued slippage is also vexing for multinational
companies that still regard China as their biggest global
opportunity. And it blots the Chinese Communist Party's celebration
of its economic stewardship as it marks its 70th year in power and
its fourth decade since adopting market-oriented "reform and
opening" policies.
Other fundamental challenges show how tough it is to spur an
economy that generated $13.4 trillion in activity last year,
particularly as China struggles with depressed trade tied to the
government's tariff-battle with the U.S.
Consumer confidence is waning just as businesses most need
domestic spending, while mixed signals on inflation -- pork prices
have surged 70% this year, while factory prices recently slid into
negative territory -- have made it difficult for authorities to
simply adopt textbook policy prescriptions like lowering interest
rates.
A debt overhang, plus strict measures to curtail it, has
dissuaded lenders and investors, including local governments, from
undertaking projects that might create jobs.
These debt levels, together with rising inflation, are narrowing
options for Chinese authorities, said Victor Shih, an associate
professor of political economy at the University of California, San
Diego. But Mr. Shih's analysis of government statements has led him
to conclude that "the elites in the party, including Xi Jinping,
have really ramped up their discussion on growth maintenance."
Official policy is critical to business trends in China's
top-down system, but authorities face no easy choices. As growth
hovers at the 6% floor of the government's target range for 2019,
for example, consumer prices are pressing up against the targeted
ceiling of 3%, ensuring that forceful action to achieve one goal
means sacrificing the other.
Unlike major Western countries, China doesn't primarily guide
the economy through interest rates and hasn't changed them since
2015, though predictions are growing rates will soon fall
again.
Instead, in September, Beijing took steps to give banks more
leeway to lend, and during the third quarter authorities let the
yuan depreciate to make its exports more attractive; the dollar now
buys more than 7 yuan.
In addition, Beijing looks to provincial and city governments to
take the lead in building job-creating projects, as it did to
counter a previous slowdown in 2008, with $586 billion in spending
on airports, railways and other construction.
However, those priorities clash with its quest to limit the kind
of runaway debt produced by the 2008 stimulus. Today, wasteful
spending can land officials in hot water.
A lack of pickup in the economy has officials signaling that
government action is needed now. Earlier this week, Premier Li
Keqiang ordered provincial governors at a symposium in northwestern
Shaanxi to "facilitate steady economic growth" and "ensure the
fulfillment of major targets and tasks."
On infrastructure, a government auditor report recently found
project delays in 13 of 30 provinces. The problem is that after
China's building binge in the past few decades, it is harder than
ever to come up with projects that make economic sense and would
meet regulatory requirements, according to ANZ economist Betty
Wang, who notes officials are unwilling to stake their political
careers on projects that may face a backlash.
"It became a bit clearer since September that the authorities
wanted to do more to support economic growth, but so far they still
haven't made any decisive moves. So a [policy] guessing game will
probably continue," says Tommy Xie, economist for Oversea-Chinese
Banking Corp. in Singapore.
During his highly-choreographed visit to China's northwest this
week, Premier Li's presence hinted at some pressing economic
priorities for Beijing: He stopped at the construction site of a
multibillion-dollar section of high-speed railway; in a shabby
neighborhood he reiterated promises to ease poverty; the pork
burger he had for lunch drew attention to the soaring prices for
China's favorite meat, and his look at a Samsung Electronics Co.
memory chip factory assembly line was a nod to international
companies that their presence is welcome.
Despite tax breaks and other government incentives to support
small companies, consumer-linked sectors are still struggling. Liu
Yaohai's cosmetic package maker Guangzhou Qiaoneng Plastic Product
Co. has pared a once-200 strong workforce by half amid
disconcerting trends.
"There were previous ups and downs," Mr. Liu, the general
manager, said, "but our business hadn't been so bleak for so long
before."
Liyan Qi and Grace Zhu contributed to this article.
Write to James T. Areddy at james.areddy@wsj.com
(END) Dow Jones Newswires
October 18, 2019 09:56 ET (13:56 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.